A source document is any document which provides an original record of a transaction and details of its nature. As such, they are needed during any audit to demonstrate that a particular transaction occurred, and also to validate the accounting treatment used to account for it. Source documents include any receipts and invoices, as well as purchase orders, wage slips, loan contract, till roles and cancelled or bounced cheques. In order to be useful, a source document needs to include the date, amount and description of a transaction, as well as ideally including the details of the other party to the transaction.
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If primary source documents cannot be found, other source documents should be used to support the nature of the transaction. For example, bank statements can be used to show the date and amount of any transaction, and inventory records can be used to show what was bought or sold on that date.
Source documents need to be retained by a business for a significant period of time following any transaction. This is partly for the purpose of mandatory public audits, but also because tax and regulatory authorities can request to see receipts for transactions to verify that a business is paying the correct amount of tax and that its business is legitimate.
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